Prompt Reporting of Employment Practices Liability Claims

Allegations of harassment, discrimination, retaliation, and failure to adhere to minimum wage and overtime rules is a nightmare for any company.  Lawsuits brought by employees represent one of the most common types of litigation faced by employers of all sizes.  Employment laws apply to both public and private companies and private companies, in fact, account for the vast majority of federal discrimination claims.  So, it is imperative that every business owner and manager be vigilant about maintaining a workplace free of harassment and discrimination and strive to be in compliance with federal and/or state employment laws.  But what you do or don’t do matters when you do receive a complaint or are made aware of a potential claim.

Whenever you receive ANY type of Employment Practices complaint or potential claim (verbal or written) that matter should be reported to the applicable Employment Practices Liability (EPL) carrier as soon as practical.  Waiting for “Formal notices” such as the actual EEOC filing, a complaint letter or a Lawsuit may occur outside of the reporting period most EPL policies dictate. One policy defines the timing as, “A claim shall be considered made when an Insured first receives notice of the Claim”.  Other policies may have longer timeframes such as 90 days or even under Extended Reporting periods of 180 days.

The sensitivity to timely claims reporting flows from the fact that most EPL is written as “claims made” insurance. “Claims made” insurance triggers coverage when the claim is made against the insured and reported to the insurer. This is in contrast with the more traditional “occurrence” coverage found in most Commercial General Liability policies. Occurrence coverage triggers coverage at the time of the occurrence, which may be years before the claim is asserted against the insured. Claims made insurance is more affordable because the insurer’s exposure is limited to a fixed period of time. However, it does require the insured to be more attentive to promptly reporting actual and prospective claims.

While it is important to read the policy to determine what constitutes a “claim”, most EPL policies define a claim as a “suit” or “demand” made by a current, former or prospective employee. A “suit” may be defined narrowly as a traditional lawsuit or more broadly to include traditional lawsuits as well as administrative claims, i.e., an EEOC charge. A “demand” is defined to include any written request for monetary or non-monetary relief. So, depending upon the policy language, a “claim” can include a lawsuit, an administrative proceeding, or a demand letter (or even an email or phone conversation) prior to any legal proceedings.

An employer may handle the EEOC internally with minimal legal assistance or costs but if the Complainant fails to succeed to their satisfaction, future litigation often results. One example occurred when an employer decided to “wait until suit was filed” before filing the claim with their EPL insurance carrier despite working on the matter throughout the EEOC process with a defense attorney. Unfortunately many plaintiff attorney’s wait until just before the two-year Statute of Limitations expires which is obviously outside of the typical reporting period prescribed in the EPL policy. Suit was filed in this matter over a year later and ultimately coverage was denied by the carrier. This employer incurred over $30,000 in legal fees before resolving the case for $18,000. This is actually a fairly small EPL suit; many result in costs easily reaching six figures in legal fees alone.

Here are a few examples of EPL policy language Definitions or Exclusions:

• Wrongful Acts as: “…..employment discrimination, including discrimination based upon age, gender, race, color, national origin, religion, creed, marital status, sexual orientation or preference, gender identity or expression, genetic makeup, or refusal to submit to genetic makeup testing, pregnancy, disability, HIV or other health status, Vietnam Era Veteran or other military status, or other protected status established under federal, state, or local law”;
• Prior/Pending” Exclusion provision is: “…any wrongful act, fact, circumstance or situation of which, as of the respective Prior and Pending Date set form in Item 5 of the Declarations Page [6-15-09} the insured had knowledge and from which the insured could reasonably expect a Claim to arise.”;
• Claim means: a written demand for monetary or non-monetary relief; a judicial or civil proceeding commenced by the service of a complaint or similar pleading; a criminal proceeding commenced by a return of an indictment; a formal administrative or regulatory proceeding commenced by the filing of a notice of charges, formal investigation order or similar document, including, but not limited to, proceedings before the Equal Employment Opportunity Commission or any similar governmental agency; an arbitration or mediation or other alternative dispute resolution proceeding if the Insured is obligated to participate in such proceeding or if the Insured agrees to participate in such proceeding, with the Underwriter’s written consent, such consent not to be unreasonably withheld; solely with respect to Part 3 (Fiduciary Liability Insurance), a written notice of commencement of an investigation by the Department of Labor or the Pension Benefit Guaranty Corporation; against an Insured for a Wrongful Act, including any appeal therefrom; or a written request received by an Insured to toll or waive a statute of limitations, relating to a potential Claim as described above. However, Claim shall not include a labor or grievance proceeding pursuant to a collective bargaining agreement.

This list comes from only three EPL policies and is certainly incomplete. So, it is essential that as a business owner, you thoroughly review your policies to understand what this contract dictates.

However, the Claim Reporting provisions can add additional stringent guidelines for reporting such as:

• “If during this Policy Period an insured [this is EVERYBODY] first becomes aware of any circumstances which may subsequently give rise to a claim being made against any insured for a specific alleged wrongful act, and as soon as practicable thereafter, but before the expiration or cancellation of this policy, gives written notice to the underwriter of the circumstances and the reasons for anticipating such a Claim, with full particulars as to the Wrongful Act, dates and persons involved, then any Claim which is subsequently made against the insured arising out of such Wrongful Act will be considered made during this policy period.”;
• The policy further stipulates that “…a ‘claim’ shall be considered made when an insured [If ANYBODY has received] first receives notice of a claim.

Conclusion

Businesses purchase EPL Insurance to provide protection against harassment, discrimination, retaliation, and failure to adhere to minimum wage and overtime rules and they should work with their agent to assure the coverage they purchase is appropriate to their needs. We already know workplace due process procedures, written policies, effective communication with employees, and supervisor training can go a long ways to avoiding problems, but day-to-day demands make it difficult to keep up with our complex laws and regulations and even the most diligent company may be sued.  Regardless of whether such complaints are true or false, it is imperative that every business owner timely engage their EPL insurance professionals and the benefits/resources such policies provide so that they may take advantage of those benefits.